The DOJ today gave the poker world a nice Festivus gift, issuing an opinion letter stating the DOJ believes the Wire Act is applicable only to sports-related gambling. Consequently, by implication it is the DOJ's position that the Wire Act does not apply to bar online poker. Predictably, the poker world overreacted, misconstruing the DOJ opinion as either conceding that Black Friday was invalid, and/or that online poker is now legal.

I'm currently on vacation for a couple of days of poker in Vegas before moving on to celebrate Christmas with my brother and his family, so I have neither the time nor the computer access to write a lengthy post. However, I'm pecking a post out on my iPhone because I wanted to provide a skeleton argument to explain the interplay of federal and state gaming laws in an attempt to help combat some of the widely held misconceptions being bandied about by many poker players on Twitter and by some in the poker media. This post is just an outline of several lengthier posts I started some time ago in my poker and the law series, but shelved when Black Friday made them somewhat superfluous. I will probably resurrect a few of them to provide a fuller treatment of the topic in the near future.

First, the good news. The title of this post is hyperbolic; the change in the DOJ opinion on the Wire Act is a big deal in two respects. First, it removes one federal criminal statute from the weapons prosecutors can wield over online poker companies. Second, and to my mind more important, it removes a potential legal barrier that would otherwise prevent states which legalize intrastate online poker from forming multi-state online poker consortiums to permit residents of states with reciprocal regulations to play against each other (akin to multi-state lotteries) in the event poker legalization occurs at the state level rather than the federal level (as increasingly seems the most likely path forward). The Wire Act does contain an exemption for transmitting wagering information from a state or country where it's legal to another such state or country, but when it comes to federal criminal law, it's better to know you aren't covered by the law in the DOJ's eyes than to have to worry about how a prosecutor or judge will interpret the law.

Now the bad news. First, the DOJ opinion will have no effect at all on the Black Friday criminal or civil cases. Those cases are based on federal statutes other than the Wire Act. Frankly, I think the DOJ knew applying the Wire Act in the Black Friday prosecution would add a problematic legal issue, so they chose to rely on other criminal statutes. Going forward, if the DOJ should choose to pursue cases against other online poker sites, the DOJ has plenty of other statutory arrows left in its quiver—the UIGEA, the Travel Act, and Illegal Gambling Business Act spring to mind.

Second, and more significantly, the DOJ opinion does not change the current legal status of online poker.Online poker has been illegal since its inception and remains illegal today.

The first step in analyzing the legality of online poker is to recognize that gambling has historically been regulated at the state level, as a function of a state's police powers. Most states banned all gambling until recently, while a few (notably Nevada and New Jersey) were far ahead of the curve in permitting some forms of regulated, legal gambling.

There are a number of federal laws that criminalize gambling related activities; e.g., the Wire Act, the UIGEA, the Travel Act, and the Illegal Gambling Business Act to name a few of the more prominent. These laws, however, are generally dependent on violations of state gambling laws as a predicate act triggering federal criminal liability. Congress could, if it wished, use its Commerce Clause power to preempt the field of gambling law (or just online gambling law—which it might do if online gambling seems inevitable at the state level). But instead, Congress essentially lets each state determine the level of legalized gambling it wants available to its residents. Federal law then provides the legal tools needed to apprehend criminals who try to evade state gaming laws by crossing state lines in some aspect of operating an illegal gambling business.

The next analytical step is the key to understanding online gambling regulation. Currently, every state either bans poker or regulates poker as a form of gambling. To be a bit more precise, every state either bans operating a poker game for profit or only permits such for-profit poker business subject to strict state regulations; even though the playing of poker may not be illegal in many states, the offering of poker as a business (e.g., as a casino, card room, or online poker site) is the key operative activity subject to state regulation.* Note that I said "poker" and did not distinguish between live and online poker, because most states do not make that distinction.

Now many poker players assert that online poker is not illegal under state law unless the state law specifically bans online gambling. I'm not certain where this argument comes from, but it's pretty sketchy legal reasoning. If it's illegal under state law to run a for-profit poker room in your basement, simply setting up a computer server across state lines to run your poker game online doesn't magically make your poker business legal (or beyond the law). As I have discussed in prior posts on jurisdictional issues, states have routinely exercised criminal jurisdiction over people outside the state's borders who engage in illegal conduct that affects people within the state's borders (a prime example is child pornography or solicitation). If a company uses the Internet to offer gambling within a state where that form of gambling is illegal outright or only legal subject to state regulations, then that company is breaking state gambling laws. Break the state gambling laws, and the federal gambling statutes kick in. Presto! We have Black Friday.

As of right now, it's safe to say that poker is either illegal altogether or regulated as gambling in every state. As of right now, no gaming company has ever been licensed by any state gaming commission to offer online poker (or online gambling of any kind). Therefore, online poker is, and always has been, illegal under existing state gambling laws. States that added a specific statutory or regulatory prohibition against online gambling did so to make the law crystal clear or to strengthen penalties, not because there was some online gambling loophole that made online poker legal.

In sum, the new DOJ Wire Act opinion has no immediate effect on online poker. Online poker remains illegal under state law as it exists today. However, Nevada and other states may soon begin issuing licenses permitting gaming companies to offer intrastate online poker. If and when multiple states permit online poker, then one should expect multi-state consortiums to develop to permit online poker play between residents of states with similar online poker regulations. Nonetheless, the days of unlicensed foreign companies like PokerStars or Full Tilt offering online poker are at an end. All hail the new, licensed, regulated, domestic online poker sites!

------------------------------------------------------------* ADDENDUM (26 December 2011): Edited to add the second half of the sentence to clarify the distinction between laws covering playing poker and those addressing those who offer poker as a for-profit business (e.g., casino, card room, online poker site).

Also added a link in the final paragraph to a post by Shamus at Hard-Boiled Poker which has some excellent discussion linking the DOJ opinion letter to the recent Nevada state legislation setting up the regulatory framework for intrastate online poker.

"The Wire Act does contain an exemption for transmitting wagering information from a state or country where it's legal to another such state or country"

So assuming that a state offers regulated online poker, would this have any impact on players in other states? Let's say Nevada licenses GrangePoker dot com and a player in California (with no regulation) wants to play. She transmits information from California to Nevada where play on GrangePoker is legal. Does this player have an argument that her play is legal, or is her play going to be considered in California and therefore illegal since Grange doesn't have a California license?

I think based on prior posts its the latter, so I am assuming that this opinion by DOJ plus the recent regulations in Nevada do not by themselves pave the way for interstate iPoker. However, it also seems that other states would not have to adopt full regulatory schemes themselves. If California were to come to some agreement with Nevada that works out how California will get it's cut, then California could simply pass a law saying that playing online is legal provided that the online room is operating under a valid Nevada license right?

It seems to me that not having to come up with their own regulatory scheme would make it simpler for other states to legalize online poker and if the above would work then legal online poker could start to spread pretty quickly.

@Local Rock: Agreed. The poker community is good at hearing only what they want to hear. Also, thanks for the "malware" heads up. Never been a problem before, and I'll have to wait until I get home to poke around under the hood for a fix.

@Glenn: Agree with your analysis. Online poker would have to be legal in the state where the player resides, but that state could choose to allow the poker site itself to be regulated by a different state so long as it meets certain baseline regulatory requirements and arranges for payments of taxes. This is very similar to the wine shipping reciprocity laws (which I covered in a prior post),

@Glenn: Also, I think if the Feds fail to act in online poker, a multi-state consortium from a decent number of states is likely. They could even allow foreign players if online poker is legal in their home country, though that step might take a year or two more to achieve politically.

I discussed this concept last year after the Reid bill failed: http://craakker.blogspot.com/2011/01/you-say-intrastate-and-i-say-interstate.html

Re: "most states do not make that distinction [between live and online poker]," California currently has legally operating poker rooms. Based on this and your previous statement, can we infer that the California poker rooms may now legally setup servers to spread online poker in the state of California?

The longer answer is that California is a prime example of my point that poker is regulated at the state level, and internet poker will require new state laws or regulations. California Penal Code sec. 337j defines "controlled game" to include poker. Thus, card rooms offering poker must be licensed by and are subject to the regulations of the California Gambling Control Commission and Bureau of Gambling Control (a subsidiary of the office of the state Attorney General). The CGCC and BGC do not currently license businesses to offer or otherwise permit online gaming, including poker. Thus, online poker is currently illegal in California. This conclusion is buttressed by the fact that the legislature recently considered and rejected amending Penal Code sec. 337j to permit online poker to be licensed and regulated on an intrastate basis. The implication is that the legislature, CGCC and BGC consider online gambling to be illegal under current law.

This scenario is essentially standard in all states that permit gambling/poker in a brick & mortar setting. Consequently, online poker is illegal in all of those states, and a state-by-state legalization process will be required before online poker is available in any particular state.

For more about CA gambling law, try these links:

http://www.gambling-law-us.com/State-Laws/California/

http://ag.ca.gov/gambling/card.php

http://ag.ca.gov/gambling/forms/forms_approval.php

http://ag.ca.gov/gambling/standards.php (note the instruction sheets for Hold 'Em and Omaha mixed in with pit games like Let It Ride).

Excellent, excellent summary of the DOJ change. Too many people were touting this as legalizing online poker when, in fact, it does very little to change the legal landscape for those already deemed to be in violation of state laws.